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View Full Version : Federal Bank Ltd (NSE:FEDERALBNK) (BSE:500469)



SMR
07-23-2015, 07:46 AM
The Federal Bank Limited is an India-based bank engaged in providing retail, corporate and, Para banking activities, such as debit card, third party product distribution, treasury and foreign exchange business. The Bank operates through four segments: Treasury, Corporate or Wholesale Banking, Retail Banking and other banking operations. The Treasury operations include trading and investments in Government and corporate debt instruments, equity and mutual funds, derivative, trading and foreign exchange operations for customers. The Corporate or Wholesale Banking segment provides loans and other banking services to corporate and other clients. The Retail banking constitutes lending and other banking services to individuals and small business customers. The Other Banking Operations includes Para banking activities, such as third party product distribution and other banking transactions. The Bank has a network of 1,277 branches in India.

Official website: www.federalbank.co.in

SMR
07-23-2015, 07:47 AM
Federal Bank reported a weak set of numbers for 1QFY2016, with NII growth at 7.2% yoy and decline in profit on a yoy basis on account of higher provisions. Advances growth moderate; NIM fell qoq During 1QFY2016, the bank witnessed a loan growth of 10.1% yoy, while deposits grew by 16.7% yoy. Growth in advances was led by the Agri and SME books, which grew by 17.3% and 16.2% yoy, respectively, while the growth in the corporate loan book was lower at 2.7% yoy. The Management expects retail, SME and agriculture portfolio to grow by 18-20%, while corporate loan growth will be back-ended in nature. CASA deposits, with a growth of 18.6% yoy, outpaced deposit growth, due to 19.2% yoy growth in savings deposits. As a result, the CASA ratio improved by 51bp yoy to 31.3%. The Reported NIM fell by 19bp qoq to 3.1%, due to interest reversal of `16cr on slipped accounts, during the quarter. The bank registered a healthy growth of 33.8% yoy on the noninterest income (excluding treasury) front. Trading gains during the quarter came in at Rs38cr as against Rs40cr in 1QFY2015. During the quarter, one-off cost of Rs18cr towards wage hike resulted in increase in Cost to income ratio by 280bp yoy to 54% for the quarter. On the asset quality front, the annualized slippage ratio was higher at 2.5% as compared to 1.7% in 4QFY2015 and 1.7% in 1QFY2015. During the quarter, the bank witnessed slippages of Rs317cr, out of which slippages from the corporate account stood at Rs143cr. One lumpy account from the metal sector with exposure of Rs134cr (industry exposure of around Rs3,000cr) slipped into NPA, which was restructured earlier. Recoveries and upgrades were lower at Rs70cr during the quarter, resulting in increase in absolute Gross NPA levels by 23.3% qoq to Rs1,305cr. Higher slippages led to increase in the Gross NPA ratio by 55bp qoq to 2.59%, whereas the Net NPA ratio increased by 25bps qoq to 0.98%. Provision coverage ratio fell by 439bps yoy and 341bps qoq to 80.5% as of 1QFY2016. Outlook and valuation: Earnings were affected due to slower loan growth, higher cost-income ratio and poor asset quality. Given the weak economic environment, we remain watchful of the bank’s near term performance on the asset quality front. At the current market price, the stock trades at 1.3x FY2017E ABV, offering limited upside from the current levels. Hence, we recommend a Neutral rating on the stock.

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